IRPA Working Papers

Irpa Working Paper No. 2012/8 – Araya K. Araya and David T. Hofisi

The Ease of Doing Business and Land Grabbing: Critique of the Investing-Across-Borders Indicators

Abstract

This paper analyses the policy implications and other potential impacts of the Investing Across Borders (IAB) indicators vis-à-vis cross border land investment deals. The International Finance Corporation (IFC) introduced the IAB indicators in its inaugural report of July 2010.1 Heavily influenced by the views of Hernando de Soto, the indicators sought to assist the stimulation of economic growth by giving primacy to foreign direct investment as a driver for the creation of jobs, transfer of technology, upgrade of skills, fostering of competition and overall contribution to the fiscal standing of economies.2
The IAB indicators were designed to be complementary to the Doing Business Index ─ a document that evaluates a government‟s regulatory framework and its effect on the „ease‟ of doing business.3 It presents its data in an ordinal way, with the higher scoring countries being those whose laws and institutions are more permissive to the operation of a business. 4 The IAB Indicators are grounded in the same methodological foundations as the Doing Business Index.5 In fact, the impetus to create the IAB indicators was directly from the users of the Doing Business Index who expressed the need for complementary indicators which evaluate the regulation of foreign-owned companies.6 Whilst the Doing Business Index assesses the regulation of domestically owned companies, the IAB indicators focus on foreign owned companies and evaluating the legal, administrative, regulatory and institutional impediments to foreign direct investment (FDI).7
The IAB indicators were developed contemporaneously with an increase in cross–border land investments deals in Africa, Asia and Latin America. Whilst on first apprehension such investments may appear innocuous and even beneficial, aimed at increasing FDI and opportunities for development, there is a growing consensus that these deals, as currently constituted, are harmful to local communities, economies and the environment. By analyzing the contents of the IAB indicators, this paper seeks to highlight how indicators can encourage the establishment of frameworks that limit benefits for host countries. In this regard, the IAB indicators violate the letter and spirit of the IFC‟s Performance Standards for Environmental and Social Sustainability; the Principles for Responsible Agricultural Investment that respects rights, livelihoods and resources (PRAI); the Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests and various other international instruments. This contradiction in the International Development Architecture (IDA) has the potential of enhancing the harmful effects of cross border investment deals. The authors suggest that greater consistency is needed between the IFC‟s commitments to sustainable development as expressed in its Performance Standards for Environmental and Social Sustainability and the formulation of the IAB indicators in order to avoid systemic contradictions (recalling that the IFC is a part of the World Bank Group) that risk benefiting investors at the expense of environmental and social protections. The paper recommends engaging in ongoing review processes for indicators generally, and in particular, for those indicators that influence decision-making in the different-but-connected parts of the IDA. Such a review process would seek to deepen consideration of indicators for social and environmental protections throughout the stages of formulation, use, and modification of the IAB indicators.
It is conceded that this research methodology has an inherent weakness. The emphasis placed on the production process of the indicators means very little evaluation is made of how countries have actually reacted to the indicators. Since the inaugural 2010 report, not much empirical data exists to show that actual impact of the indicators and how countries have in fact reacted to the indicators. To that extent, many potential consequences are posited in the paper are based on a reasonable deduction of the letter and spirit of the indicators vis-à-vis countries‟ desire to boost FDI and their overall standing. The authors are of the view that as such data becomes available this will be the subject of further research in this area. Further, this research analyses the IAB indicators in isolation. It does not evaluate other indicators that may be complementary to the IAB indicators. This is premised on an attempt to analyze the philosophical underpinnings and policy and legal ramifications of the IAB indicators themselves, and whether they allow for an interaction with other indicators without irrevocably harming the social and environmental protections of local communities.

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